The Court of appeal has delivered its judgment in this VAT case concerning whether the appellants were 'state-regulated institutions' for the purposes of the VAT exemption for supplies of welfare services. The appellants also argued that by subjecting their supplies of welfare services to VAT at the standard rate, there was a breach of the principle of fiscal neutrality. The Court of Appeal dismissed the appeals.
Advocate General Sharpston has issued a long and detailed opinion in relation to this case – a referral from the Hungarian courts – concerning the interpretation of Article 33 of the VAT Directive.
Article 33 relates to the determination of the place of supply of goods for ‘distance sales’ to certain taxable persons and to non-taxable persons (i.e. consumers). ‘Distance sales’ are regarded as supplies of goods where the goods are dispatched or transported to the customer by or on behalf of the seller. In essence, Article 33 makes the place of supply the place where transport of the goods to the customer ends. As an example, a supply of goods dispatched by or on behalf of the seller from the UK to a non-taxable consumer in France would be regarded as taking place in France.
This rule ensures that generally, VAT is due and is collectable in the country where consumption of the goods takes place.
In this case, KrakVet – a Polish company with no establishment , office or warehouse in Hungary sold pet food to private consumers in Hungary. It offered customers the opportunity for them to arrange their own transportation of the goods from Poland to Hungary or for them to use a connected company “KBGT”. The question to resolve was whether, in light of these arrangements, the goods were dispatched or transported by or on behalf of the seller (KrakVet). A positive answer would result in the supply taking place in Hungary – a negative answer would result in the supply taking place in Poland.
This significant - and importantly - binding decision from the UK Upper Tribunal (UT) concerns the zero rating of electronic editions of newspapers.
News UK sought to argue that the electronic versions of its printed newspapers should be zero rated as newspapers. News UK were unsuccessful at the First-tier Tribunal (FTT), the FTT determining that the digital versions could not be considered ‘newspapers’ as envisaged by the UK VAT legislation.
On appeal to the UT, the decision of the FTT has been overturned, the UT agreeing with News UK that the supply of digital editions of its newspapers is correctly zero rated.
The key points in reaching this decision were that the UK retains its zero rates by virtue of Article 110 of the VAT Directive. Only this Article is concerned with zero rating. Thus, in this context, EU provisions concerning reduced rates (not zero rates) supplies were not relevant.
In the absence of material changes to the UK’s legislation, it should be interpreted on an ‘always speaking’ basis, i.e., it must recognise the purpose and historical context of the provision and take into account technological and similar changes that did not exist at the time the original legislation was enacted.
The FTT had considered the relevant facts in reaching its decision (HMRC argued that it had not) but had drawn the wrong conclusion.
The UT ruled in favour of News UK.
This is a significant decision from the First-tier Tax Tribunal (FTT). The case concerns the recovery of input tax by a VAT group on costs incurred setting up and maintaining an investment fund.
HMRC disallowed the Appellant’s claim for input VAT on the basis that most of the activities carried on by the appellant were not to be regarded for VAT purposes as economic activities. Whilst HMRC acknowledged that the Appellant made some taxable supplies (the supply of management services), it argued that, in essence, the Appellant provided investment capital in return for dividends which was a non-economic activity which precluded recovery of related input VAT.
Advised by Grant Thornton UK LLP, the Appellant challenged that view. It argued that the UK VAT group (of which the Appellant was a member) was a fully taxable entity which only made taxable supplies of management services. As such, it contended that it was entitled to reclaim all the input VAT incurred on both setting up the fund structure and the ongoing costs.
The FTT agreed with the Appellant and allowed its appeal.
This was an appeal by Target Group Ltd against a decision of the First-tier Tax Tribunal.
The case concerns the application of the VAT exemption for certain financial services set out in Article 135(1)(d) of the VAT Directive. In particular, whether the services provided by Target Group Ltd to a bank were ‘transactions concerning deposit or current accounts’ or were ‘transactions concerning payments or transfers’.
The First-tier Tax Tribunal found that, although the services supplied were capable of falling within the VAT exemption provided for by Article 135(1)(d), on the evidence, the services were, in fact, debt collection services which is specifically excluded from the exemption.
Target Group appealed to the Upper Tribunal on the grounds that the First-tier Tax Tribunal had made a number of errors of law. However, the Upper Tribunal has dismissed the appeal on the basis that the services provided by Target Group Ltd to its customer bank did not fall within Article 135(1)(d). As a consequence, the services were liable to VAT at the standard rate.
This was HMRC’s appeal from a decision of the First-tier Tax Tribunal.
The issue in the case was whether the taxpayer company – Pertemps Ltd - was liable to account for VAT in relation to the operation of a salary sacrifice scheme for temporary workers. The workers agreed to forego a proportion of salary in return for the payment of expenses by Pertemps. Pertemps made a small ‘administration’ charge of between £0.50p and £1.00 to each staff member for each shift worked and HMRC considered that this constituted a supply of services for consideration (ie a business or ‘economic’ activity for VAT purposes).
The First-tier Tax Tribunal allowed Pertemps’ appeal against HMRC’s ruling and HMRC appealed that decision to the Upper Tribunal.
The Upper Tribunal has found against HMRC ruling that Pertemps’ operation of the salary sacrifice scheme was not a business activity and that it supplied no services to the workers in return for the administration fee.
The Court of Justice has issued its judgment in this long-running dispute between the University of Cambridge and HMRC.
The University has a substantial endowment fund which is invested. The fund is derived from donations and bequests and is managed by a third party fund manager. The fund manager charges VAT on its fund management fees and the University submitted a claim to HMRC to reclaim part of that VAT. The University considered that, as the fund partly financed both its economic activities of providing education (VAT exempt) and its activities of supplying commercial research and other taxable activities, it was entitled to treat the fund management fees as an overhead and claim a proportion of the input VAT
HMRC refused the claim on the grounds that the investment of donations and the operation of the endowment fund was not an economic activity and that the VAT incurred on the fund manager’s fees was directly attributable to that activity.
The Court of Appeal decided to refer the issue to the Court of Justice for guidance on the interpretation of EU law.
The Upper Tribunal has issued its judgment in this VAT case relating to the operation by Marks & Spencer Plc (M&S) of a business promotion scheme known as “Dine in for £10 with free wine”. Under the terms of the scheme, customers could purchase a meal consisting of three elements - a main, a side dish and a dessert. In addition, provided these three elements were purchased, the customer was also entitled to a ‘free’ bottle of wine (or an equivalent non-alcoholic drink).
M&S claimed that, in the circumstances, the £10 paid by each customer under the scheme should only be apportioned to the food and not to the wine. Accordingly there should be no VAT to pay in relation to the ’free’ supply of wine.
HMRC took the opposite view. According to HMRC, the customer paid £10 consideration for all four elements of the promotion package and that, as a result, VAT was payable in relation to the wine element. The First-tier Tax Tribunal issued a decision in April 2018 and found in favour of HMRC.
The Upper Tribunal gave M&S permission to appeal and has now issued its judgment dismissing that appeal.
HMRC has published guidance for businesses impacted by the new Domestic Reverse Charge (DRC) which is to be introduced for certain supplies in the construction sector from 1 October 2019.
This was a Polish referral to the Court of Justice which concerned the provision of fuel cards by a parent company based in Austria to its subsidiary companies throughout Europe. The parent company submitted a claim for repayment of VAT incurred on fuel purchases to the Polish Tax Authority which refused the claim. The CJEU considers that, like in Auto Lease Holland, the parent company did not purchase the fuel and was not entitled to a VAT refund. In essence, it actually provided short-term finance to its subsidiaries to enable them to purchase fuel. The loan was an exempt supply for VAT purposes.
The Court of Appeal finds for HMRC in this case concerning the sale of fractional interests in Fortyseven Park Street - a residential development in Mayfair - London. The taxpayer considered that what it was selling was an interest in land which was exempt from VAT - the First-tier Tax Tribunal and the Upper Tribunal had agreed. However, the Court of Appeal disagreed and allowed HMRC's appeal. Whilst there was a sale of the right to occupy the apartments in question, on the evidence, that supply was only part of the a much larger supply of services. As such, the hotel type services provided in addition to the land meant that, for VAT purposes, the supply did not qualify as a leasing or letting of immovable property.
The Court of Justice has issued its judgment in this case which concerns whether a French branch of a UK business could reclaim input VAT where the costs in question were used wholly by the UK head office establishment. In addition, the Court was asked to provide guidance on the right to recover input VAT incurred on general costs (ie overheads). The Court concluded that an apportionment of the VAT was required.
HMRC has published draft legislation that will impact the Financial Services sector and Fund Managers if the UK leaves the EU on 29 March 2019 with 'no-deal'
HMRC has recently published a partnership paper setting out what it considers to be the implications of a no-deal Brexit from a VAT, Customs and Excise perspective.
Another case concerning the recovery of input VAT by a holding company on costs relating to the sale of shares in a subsidiary. In the circumstances, the Court ruled in this case that the input VAT was not reclaimable.
HMRC has published a new draft version of VAT Notice 700/2 - Group and Divisional Registration. The proposed changes will affect many businesses in the financial services sector as HMRC seeks to close what it considers to be a VAT loophole. The valuation of 'bought in' services is to change and this is likely to have a significant financial impact on banks and similar institutions.
VAT Alert - HMRC updates guidance on the proposed domestic reverse charge for supplies of services in the construction industry [ 218 kb ]
HMRC has issued further guidance in relation to the introduction of a reverse charge for services in the construction industry to be introduced from 1 October 2019
The FTT has issued its decision in this case involving The Wellcome Trust Ltd - The issue was whether the place of supply of services to the company took place in the UK and whether the services were, thus, subject to the VAR reverse charge.
Bahrain is to introduce a VAT system from 1 January 2019 and has published the new VAT legislation
This Alert covers the main VAT points arising from the 2018 Budget
The CJEU has issued its judgment in this case. Completely ignoring the previous Advocate General's opinion. The Court considers that in VWFS's case, there were two supplies. A Taxable supply of a vehicle and an exempt supply of finance. On that analysis, VWFS is entitled under the VAT Directive to apportion its overhead input tax. Generally, a business is required to use an apportionment method based on turnover values but, in some cases, the tax authority may allow or require the use of a different method provided that it produces a more accurate result. HMRC's determination in this case that VWFS was entitled to no input VAT recovery on its overheads was, therefore, contrary to the Directive's purpose.
The Court of Justice has delivered its judgment in this Irish referral. The issue was whether Ryanair was entitled to reclaim input tax incurred on costs relating to the proposed takeover of Aer Lingus. The takeover was aborted after the European Commission blocked it on competition grounds. The Irish Revenue considered that Ryanair was not entitled to the claim on the basis that it had not made any taxable supplies of management services to Aer Lingus. However, the Court ruled in Ryanair's favour.
The European Council has approved plans put forward by the European Commission to apply a number of quick fixes to the EU VAT system. The measures - which come into force on 1 January 2020 - affect the VAT treatment of 'call off' stock sent to other Member States, provide for the simplification of chain transactions and make it compulsory to obtain and verify a customer's VAT identification number on intra-Community supplies of goods as a condition of securing exemption from VAT. Our VAT Alert covers these in more detail.
Our Workshop on 21 September was well attended but, inevitably, some delegates could not make it on the day. Our slides for the event can be found by clicking on the above link. Anyone wishing to see a demonstration of Grant Thornton's API Submission tool or wishing to discuss their particular MTD requirements, contact your usual Grant Thornton advisor.
Grant Thornton has designed an API software solution to help businesses to submit their VAT returns digitally when Making Tax Digital for VAT is introduced in April 2019. For a demonstration, contact you local Grant Thornton VAT specialist or any of the VAT team listed in the Briefing Paper accessed from this link.
The Finance Bill 2018/19 includes measures to change the VAT accounting treatment of vouchers. The changes are likely to impact voucher businesses and those involved along the supply chain. Businesses selling vouchers may need to register for VAT in other Member States of the EU if the underlying redemption goods are physically located there.
The Court of Justice has ruled that the dental plan service provided by DPAS was not transactions involving payments or transfer and not exempt from VAT. The service provided by DPAS was an administrative service which did not alter the legal and financial relationship between the payer and the payee.
HMRC has published its updated Public Notice on MTD which provides greater clarification on the requirements for businesses to adapt their accounting systems. Our Briefing Paper has been updated top reflect these changes.
Our guide to AEO for businesses that trade goods across international boundaries. Businesses preparing for life after 'Brexit' may benefit form attaining AEO status. Our guide sets out the details
Court of Justice - Judgment 5 July 2018
Another case relating to the recovery of VAT on acquisition costs by a holding company. This time the Court of Justice has ruled that the letting of a property to a subsidiary is to be regarded as "an involvement in the management of the subsidiary" and thus an economic activity giving the holding company a right of recovery.
This article - written by Olga Bondar of our Indirect Tax team in London highlights the issues facing all VAT registered businesses in relation to the implementation of Making Tax Digital in April 2019. The Article considers what businesses should be doing now to prepare for this huge change to the VAT reporting system in the UK.
This was HMRC's appeal. The First-tier Tax Tribunal allowed Summit's appeal relating to whether a planning restriction contained in the planning consent for a new student accommodation block meant that the building did not meet the statutory definition of a dwelling or number of dwellings. The Upper Tribunal agreed with the FTT and dismissed HMRC's appeal
First-tier Tax Tribunal
This case concerned the promotional offer "Dine In for £10 with free wine" from M&S. The question was whether the supply of the wine as part of the offer was really free. The Tribunal concluded that the economic reality was that the four items (including the food and the wine) were all purchased together as a package for £10 and that, accordingly, the wine was not free and VAT was due on the applicable element of the consideration.
Court of Justice - Advocate General's Opinion
This case concerns the recovery of input tax on services supplied to Ryanair in relation to an aborted takeover bid for Aer Lingus. The AG confirms that as the acquisition would have expanded the taxpayer's taxable airline activities (taxable outputs) it was entitled to reclaim the input tax on the costs even though the deal was aborted.
Court of Appeal
This judgment confirms that partial fees paid by students based on their socio economic status is to be regarded as consideration for supplies of education to them by the College and that, as a consequence, the income is to be regarded as 'remuneration' for VAT purposes. The College is 'in business' and the construction of a new teaching block did not qualify for zero-rating
Court of Justice - Advocate General's Opinion
The AG has issued his opinion in the case that began as an input tax issue but has now morphed into a single v multiple supply issue. The AG considers that when a car is sold on HP terms, there is a single complex supply of a car with finance and that the whole supply is taxable at the standard rate rather than two separate supplies of the car and the credit.
Could your business benefit from a VAT Analytical & Recovery Review?
This case concerns the operation of a customer loyalty scheme and whether payments made to hotels constituted third party consideration for the supply of accommodation to customers redeeming previously earned loyalty points. The Tribunal found that the payments were not third party consideration but was direct consideration for a supply of redemption services by the hotel to the operator of the scheme.
HMRC has announced a change of policy in relation to the UK's operation of cost sharing groups. This follows a number of recent judgments from the Court of Justice (in particular DNB Banka and Aviva - see below) which ruled that CSG's are not available to businesses in the banking and insurance sectors.
Court of Appeal
The Court of Appeal has decided to refer this matter to the Court of Justice as it considers that it requires guidance on the interpretation of EU law. The issue to be resolved is whether the University is entitled to attribute input VAT incurred on fund management fees to its overall general business activities. It considers that the VAT is 'residual input tax' that can be apportioned. HMRC considers that the input VAT is consumed by the Endowment fund under management and that, as a result, there is no direct or immediate link to the University's general activities. The First-tier Tax and Upper Tribunals both ruled in favour of the University and this is HMRC's appeal to the Court of Appeal.
Advocate General's Opinion
The Advocate General considers that direct debit collection services provided by the taxpayer to customers are not 'transactions concerning payments or transfers' and cannot therefore be exempt from VAT under the provisions of Article 135(1)(d) of the VAT Directive. The services are preliminary services that are liable to VAT at the standard rate.
UK and EU publish agreement on VAT & Customs deal
The United Kingdom and the European Union have published a draft agreement setting many of the issues affecting the UK as it prepares t exit from the Union. The agreement includes issues relating to VAT & Customs and introduces a transitional period up to 31 December 2020. Existing VAT & Customs rules will continue in force until that date.
Court of Justice
This case concerned two separate supplies of fuel and the question of which supply should be regarded for VAT purposes as an Intra Community supply of goods. The case also concerned whether incorrectly charged VAT can be reclaimed by a businesses through its VAT return. - Held - the only supply that could be regarded as an intra-community supply of goods is the supply to which the transport element could be ascribed. Moreover, VAT incorrectly charged by a supplier cannot be reclaimed by the purchaser through its VAT return.
Court of Justice
This case concerned the EU principle of equal treatment. The company sold pharmaceutical products to Pharmacies via Wholesalers. They were obliged to pay rebates to insurers under both public and private health insurance schemes. For public health insurance schemes the taxpayer was allowed to reduce the value of the supply of the goods by the discount given but was not allowed to do so in relation to private health scheme supplies.
HMRC has published new internal guidance for their officers relating to the recovery of VAT by pension schemes.
The Government has decided that Making Tax Digital (“MTD”) is going ahead but that the starting point will be VAT registered taxpayers, rather than those in the Income Tax Self-Assessment (“ITSA”) space. From periods beginning on or after 1 April 2019, VAT registered businesses with a turnover above the VAT registration threshold will be required to submit the current nine box VAT return either straight from the accounting software, or via Application Program Interface (“API”) software linking spreadsheets to the HMRC system.
Customs Briefing Papers
The Supreme Court has delivered its judgment in this case which concerns whether interest is payable on a compound basis rather than on a simple basis. Littlewoods claimed for the repayment of interest which would compensate it for the loss of money over a period going back to 1973. Its claim was in the law of unjust enrichment - a common-law remedy being restitution. HMRC contended that the only regime that was capable of paying interest to taxpayers was that provided under statute. (s78 of the VAT Act 1994). The Supreme Court agrees with that view. It also considers that the term 'adequate indemnity' as postulated by the Court of Justice does not mean that taxpayers should receive full redress. Member states are entitled to define what provides and adequate indemnity and, in the circumstances, the UK had decided that this was the payment of simple interest as provided for by section 78.
Court of Justice Judgment
The Court of Justice has confirmed that where a leasing contract for a vehicle provides for an 'option to purchase' on payment of a balloon payment, it is to be treated as a supply of services rather than as a supply of goods. From a tax-point perspective this is good news as leasing companies can account for VAT on receipt of each payment rather than on the full selling price of the vehicle at the commencement of the contract.
HMRC has issued Revenue & Customs Brief 3/2017 highlighting a change of policy in relation to the VAT liability of fund management services provided by Insurance businesses to Defined Benefit pension schemes. A major change acknowledging that the previous exemption applied to insurance companies' fund management services was incorrect.
Briefing Paper - European Commission announces fundamental further changes to the EU VAT system [ 268 kb ]
The EU Commission has announced that it is to introduce new legislation to move the EU VAT system from the current transitional rules to the definitive VAT system by 2019. This new system will tax supplies in the country of destination if the customer is a certified taxable person.
The UKs departure from the European Union is likely to increase the costs of trading internationally – but by how much? While we may not have sight of what our future relationship with the EU will look like, Grant Thornton has developed Brexit Indirect Tax Impact Analysis, to help you to understand the possible Customs Duty and VAT costs posed to your business by various Brexit scenarios.
First-tier Tax Tribunal
This case concerns whether search fees incurred by a firm of conveyancing solicitors which are recharged by the solicitors to its clients are outside the scope of VAT (as disbursements) or are part and parcel of the solicitor's conveyancing service. The Tribunal considered that, on the evidence, the firm was the consumer of the searches (not the client). As such, the recharges were simply further consideration for the supply of the conveyancing service and were subject to VAT.
The United Kingdom’s Aircraft, Engine and Parts Manufacturing industry is only exceeded in size by that of the United States of America. This is according to IBISWorld’s industry research, which expects overall revenues to rise at a compound annual rate of 4.4% to £30 billion over the five years ending 2017-18. The aviation sector plays an important role in the European economy – a fact recognised by EU Customs authorities. The 2016 Union Customs Code (UCC), provides for Customs Procedures and provisions that offer relief of customs duty liabilities for imported aircraft and parts. The UCC, however puts a sharp focus on ensuring strict compliance with the terms of these Reliefs. Our Briefing Paper offers a guide.
Court of Justice Judgment
The Court has overruled the Advocate General (AG) in this case which concerned whether the taxpayer was entitled to reclaim input VAT incurred on the refurbishment of a water pumping station owned by the local Municipality. The AG was of the view that the input VAT could not be reclaimed as the taxpayer had provided its services to the Municipality for no consideration. The full Court disagreed and said that, to the extent that the works to the pumping station were necessary for it to make its own taxable supplies, the taxpayer was entitled to reclaim the input tax.
Court of Justice Judgment
The Court of Justice has stated that businesses such as DNB Banka and Aviva (which supply financial services) are not entitled to benefit from the exemption for services provided to them by a cost sharing group. The Court has confirmed that the exemption for cost sharing group services is only available to entities that make exempt supplies under the provisions of article 132 of the VAT Directive (known as 'public interest' activities). Financial services are exempt under Article 135 of the VAT Directive so services provided by a cost sharing group cannot be VAT exempt. This is a blow to the FS (and other non-public interest) sectors.
Court of Appeal
This was an appeal by the taxpayer to the Court of Appeal from a decision of the Upper Tribunal. SAE Education Ltd argued that it should be regarded for VAT purposes as a college of Middlesex University and that, as such, it was an eligible body and could exempt it supplies of education to students. On the evidence, the Court found that the link between SAE and the university was too tenuous and was more of a commercial or contractual arrangement. SAE was not part of the institution of the university and was not recognised as such by the university. The Court of Appeal dismissed the taxpayer's appeal.
First-tier Tax Tribunal
The First-tier Tax Tribunal has issued a decision ruling that a sub-contractor can zero-rate its supplies in a situation where the main contractor has received a certificate from the intended user stating that the building is intended for use as a relevant residential building. This was because the development also qualified as a dwelling (or number of dwellings).